Boskalis Annual Report 2018

ANNUAL REPORT 2018 – BOSKALIS 59

OTHER RISKS

‚ ‚ The progress and development of the operating results and the financial position of individual projects and business units and the Company as a whole, as well as the operational and financial risks, are monitored by means of structured periodical reporting, analysis of the financial results and performance reviews at Board of Management and senior management levels.

COMPLIANCE WITH LEGISLATION AND REGULATIONS As an international dredging and marine contracting and services expert, Boskalis is active in numerous countries, and therefore must deal with a wide range of diverse legislation and regulations. Some of the activities are managed by Boskalis local management, but in many countries intermediaries and/or local representatives are used in securing and executing projects. This combination of factors results in a heightened risk that relevant (local) legislation and regulations may not be fully complied with. Events of non-compliance can result in regulatory investigations, litigations and/or sanctions. These risks are as much as possible mitigated by the company’s internal risk management and control systems that include a General Code of Business Conduct as well as a Supplier Code of Conduct, which are reviewed and evaluated regularly. Intermediaries and/or local representatives are also contractually bound to comply with our codes of conduct. Entering into contracts with local intermediaries and/or representatives is subject to clearly defned procedures, including background checks. Furthermore, Boskalis has a Whistleblower Policy in place and a confdential independent counselor to whom employees can report any suspected misconduct. PROPERTY DAMAGE AND THIRD-PARTY LIABILITIES Boskalis has taken out a broad package of insurances to cover against risks with respect to damage to its properties as well as third-party properties and potential other third-party liabilities. The internal risk management and control systems of Boskalis are based on the principles of effective management control at various levels in the organization and are tailored to the day-to-day working environment in which the company operates worldwide. One of the main foundations for risk management is the internal culture of the company, which is characterized by a high degree of transparency regarding the timely identifcation, evaluation and reporting of risks and a remuneration system that is geared to avoiding potentially perverse incentives. In addition to the specifc risk mitigation measures mentioned above, our internal risk management and control systems include the following main components: ‚ ‚ In the daily operations, the operational risk management and control is largely supported by a comprehensive system of quality assurance rules, procedures and systems, particularly regarding the acquisition and execution of projects. ‚ ‚ In addition to audits by external certification bodies, Boskalis also performs regular internal audits under the auspices of the SHE-Q department to review the design and operational effectiveness of this system. SHE-Q is discussed at the quarterly meetings between the Board of Management and the management of the business units, with the management of the SHE-Q department also being present. ‚ ‚ The daily management of the organization is based on short lines of communication and command. Speed, know-how and decisiveness are of the essence, both in the tendering phase and in project execution. Daily management is hands-on. INTERNAL RISK MANAGEMENT AND CONTROL SYSTEMS

RISKS REGARDING FINANCIAL REPORTING

FINANCIAL REPORTING STRUCTURE Financial reporting at Boskalis is structured within a tight framework of budgeting, reporting and forecasting. A distinction is made between reports for internal and external use. External reporting at group level consists of an annual report, including fnancial statements audited by the external auditor, as well as a half-year report, containing summarized fnancial information, both consolidated and segmented. The external reports are based on the internal fnancial reporting, in accordance with EU-IFRS. Internal fnancial reporting consists of extensive consolidated quarterly reports in which current developments are compared to the quarterly (cumulative) budgets and previous forecasts. In addition, each quarter we reiterate or update our forecast for the annual results, including the cash flow and balance sheet positions at the end of the fnancial year. The quarterly budgets are part of the annual group budget, which is prepared every year by the Board of Management and approved by the Supervisory Board. Internal fnancial reporting has a layered structure – in accordance with the internal allocation of management responsibilities – with consolidation taking place at successive levels, starting with the projects, through the business units and divisions, and resulting in consolidated group reports. The fnancial and operating results are analyzed and clarifed at each of these levels. Project and contract managers are responsible for budgets, income statements and balance sheets for their projects or contracts, and these are drawn up in accordance with the applicable guidelines and instructions. In turn, business unit managers are responsible for the fnancial reporting of their respective business units. Boskalis holds substantial investments in joint ventures and associated companies and these holdings are intensively monitored. Shareholder and/or board meetings are held regularly, with Boskalis being represented in line with the size of its interest. Clear shareholder agreements have been concluded with the co-shareholders in such joint ventures regarding topics such as board and management representation, flling of management positions, strategy and policy, budget, fnancial reporting, the appointment of auditors, investments and fnancing. The policy is that such joint ventures are in principle fnanced without guarantees from the shareholders. The Board of Management discusses the quarterly reports with the relevant business unit managers in formal quarterly meetings. These meetings are minuted. The consolidated group reports are discussed with the Supervisory Board on a quarterly basis. The most important aspects of our fnancial reporting systems are set out in manuals, guidelines and procedures, all of which are available electronically. Staff are trained in how to apply